Foreign Trademark Protection in China: Case Studies from 2003

Honda

This case involved a company based in Wuxi that used the trademark "Hongda" to market its motorcycle parts. Honda took exception to this and filed for administrative action in January 2003 with the aim of forcing the Wuxi company to cease this activity. The action was ultimately successful and the "Hongda" company was ordered to cease infringement and pay a fine of Rmb300,000 out of sales of Rmb430,000 that it had made from the "Hongda" parts. This is one among a number of different cases that Honda is pursuing in China.

3M

A manufacturer of aluminium and plastic boards in Ningbo had, since 2001, sold a total of Rmb811,000 worth of goods bearing the "3M" mark. In May 2003, the Ningbo Administration of Industry and Commerce levied a fine of Rmb100,000, ordered a cessation of infringing activities and confiscated all remaining infringing materials.

Hewlett Packard

In this case, a Beijing citizen was found making and marketing printer cartridges marked with "HP". In February 2003, the Haidian District Administration of Industry and Commerce ordered the infringer to cease this activity and levied a fine of Rmb10,000 in addition to confiscating the counterfeit products.

Mickey Unlimited and Mickey & Co.

Since April 2000, the Shenzhen "Mickey" Industrial Co. had been purchasing or commissioning others to manufacture 7,500 dresses bearing "Mickey Unlimited" or "Mickey & Co." labels. During this time it sold 7,066 dresses for a total value of Rmb440,000. In April 2003, the Shenzhen Administration of Industry and Commerce ordered cessation of these activities, and in addition fined the company Rmb250,000 and confiscated the remaining products.

What Should We Make of the Cases?

Although these cases have been highlighted by the SAIC as key cases representing a renewed vigour on the part of the authorities to clamp down on trademark violations, they are in fact only a cross section of cases involving easily recognizable brands that enforced their IP rights in 2003. All of these companies face many cases of trademark infringement simultaneously in different parts of China, and it remains a key challenge to keep up with the growing ranks of infringers in China's booming consumer goods economy. What can we extrapolate from the published cases from the SAIC about the general legal approach to trademark violations in China? And how do the legal remedies tally with foreign brand owners expectations and needs in the area of IP protection in their China operations?

Overview: Enforcing IP in China

In China two methods exist to enforce intellectual property rights: administrative penalties and judicial cases. It is helpful to think of administrative actions as a cheap and quick way to stop IP violations where they are found. The main down side to administrative actions in China is that the administrative body has no authority to award damages or determine liability. Judicial actions, on the other hand, encompass the more traditional lawsuit, result in decisions with potentially more deterrent value, but can take quite a bit longer to conclude. What is most noteworthy in the cases discussed above is the tendency to use administrative, rather than judicial, measures to protect IP rights.

Figures from the State Administration of Industry and Commerce show that it handled 26,488 cases specifically involving trademark infringement and counterfeiting. This shows that enforcement in these issues is becoming more widely used.

This is welcome news, as it indicates that the legal structure has developed to the extent where holders of violated rights have recourse to the law. Nonetheless, after considering the cases above and the general legal situation in China, a number of significant problems still remain that deserve comment.

The Efficacy of Administrative Fines

Administrative action in China is often of limited punitive value. A striking aspect of the cases highlighted above is how small the fines handed out actually are. It has often been commented that the penalties that IP infringers face are too low to seriously act as a deterrent. It is commonplace today to point to the issue of serial infringement across China - if serial infringers are caught in one place, they close down their current operations and resume them elsewhere. As a perhaps unintended bonus for them when they restart operations, they have gained added expertise in methods to work around the law. The existence of such lenient penalties as those evidenced in the reviewed cases allows this practice to continue in China to the detriment of IP rights holders.

The Bane of Protectionism

Effective IP enforcement in China is often hampered by the existence of good connections between local officials and infringers. Regional officials have been known to assist infringers by tipping them off to impending raids (in an administrative action, the raid is conducted on the premises of the infringer with an eye to gathering evidence of the infringement), delaying an action, or even refusing to take any action citing a lack of evidence of infringement. It also is not unknown for such officials to return confiscated goods to an infringer after a raid. It should be noted that such irregular practices are usually confined to the provincial regions